Ishwar Prasad, a professor of economics at Cornell University and former head of the IMF’s China division, warned that “cryptocurrency could contribute to financial and financial instability.” He added that the risk increases if the industry is deregulated and lacks investor protection.
Economists see crypto as a risk to financial stability
Charles H. of Cornell University shared his views on cryptocurrency in an interview with CNBC published on Wednesday.
Prasad is a Senior Fellow at the Brookings Institution, where he chairs the New Century in International Economics, and is a research associate at the National Bureau of Economic Research. He previously headed the Department of Financial Studies at the International Monetary Fund’s (IMF) research division and the IMF’s China division.
Cryptocurrencies can contribute to financial and financial instability, especially if they give birth to a large and unregulated financial system where investors have no protection.
His remarks echoed a recent report released by the IMF warning that the growing popularity of cryptocurrencies could be a threat to financial stability. Moreover, John Kunliff, deputy governor of the Bank of England, said this week that there is an urgent need for control as the crypto industry is growing rapidly, and that there are some “very good reasons” that could put the country’s financial sector at risk. Stability in the future, although risks are currently limited.
Professor Prasad was also asked how cryptocurrency can widen economic inequality. “Cryptocurrencies and their underlying technologies protect the promise of democratization of financing by making digital payments and other financial products and services easily accessible to the public,” he replied. “But because of the existing inequalities in digital access and financial literacy, they can make inequalities worse.”
In addition, he stressed that “any financial risk arising from investing in cryptocurrencies and related products will fall heavily, especially on simple retail investors.”
The Colonel Professor of Economics also discussed the Central Bank’s Digital Currencies (CBDCs), saying:
I think the central bank’s digital currency is the way to the future. But every central bank will want to ensure that its money is not used for illegal purposes, so the transaction will be auditable and identifiable.
However, Prasad noted that “if you pay every penny, including a cup of coffee or a sandwich, a government agency might see, it’s an uncomfortable offer.” The economist concluded: “You, in a more dystopian world, the government can determine what kind of products and services its money can be used for.”
Do you agree with the professor of economics? Let us know in the comments section below.
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